Friday, April 11, 2014

#60 The Problem With Money

This entry (likely the first in a series) is in the form of a conversation with some anonymous opinions ...

The essence of the problem is that most people go from birth to death without understanding money, or its role in a society or an economy. The extent of most people's concerns about money is how to get more of it, with as little effort as possible. Everyone understands that money “buys things,” or that one exchanges money for goods and services one desires. Yet that is about all they understand. Few people have any real understanding of where money comes from, or how it is created, or how it enters the economy, and where it goes from there, or who benefits the most or the least from the way things work now, or who benefits the least.

This repeat appeared in the original. Who benefits the least? Put better, who is screwed the most by the present system? Most people have their ideas about this, assume all kinds of rubbish about “productivity,” while they sit day after day in an office shuffling papers. But never mind, don't take it personally. It's what we were all told was to be a better life and many of us chased the money to go where we went. Here on this blog, we throw the curtain aside and see that everyone is screwed by the present system, some more than others. Fact is though, most people never give money a second thought as to what it is, what it might be, even what it should be. There's also a vague feeling that money and everything dealing with it is “dirty” and therefore people don't usually even like discussing the subject, even though it lies at the very heart of everything in our lives. That in itself is rather weird.

The Federal Reserve Act was passed in 1913 in response to a wave of bank crises, which had hit on average every six years over a period of 80 years. The resulting economic depressions triggered a populist movement for monetary reform in the 1890s.

This point is important because there's a natural law involving debt that bankers never follow and therefore they suffer and make the rest of us suffer for breaking it. It's the seven year rule and it involves literal forgiveness of debt. It is specifically given in Deuteronomy 15: 1-2

At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbour shall release it; he shall not require it of his neighbour or his brother, because it is called the Lord’s release.” New KJV

THIS LAW SHALL BE UPHELD WITHIN THE VEN, so if there are any who have other ideas about dealing with debt other than forgiveness and cancellation, they can jolly well take their business elsewhere. Make no mistake, people always benefit from paying off their debts. They will have improved credit rating within the VEN, but after 7 years if they cannot pay off what they owe and must let that bill go unpaid so as to be frankly bankrupt, that debt must be cancelled as there is little sense attempting to draw blood from a stone. These cases often result from abrupt changes in circumstances which do happen naturally though occasionally. Lenders will always hedge their bets and expect a certain degree of loss, but that's the finance business.

Also notice please that this passage references neighbours and brothers. We therefore have as a requirement that one becomes a VEN member through being recommended by two members as well as the Domicile rule which simply requires a member to prove legal residency in the IE's operating area for at least a year.

Mary Ellen Lease, an early populist leader, said in a fiery speech that could have been written today:

Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street.
The great common people of this country are slaves, and monopoly is the master. . . . Money rules . . . .Our laws are the output of a system which clothes rascals in robes and honesty in rags. The parties lie to us and the political speakers mislead us. . . .

We want money, land and transportation. We want the abolition of the National Banks, and we want the power to make loans direct from the government. We want the foreclosure system wiped out.-”

Interrupting Mary Ellen here, yes, we want money because like it or not, there is never enough of it because of debt scarcity, the direct result of usury. Indeed most of us should actually have stacks of some money that we have decided is better held in savings than spent. But as for making loans direct from the government, this is the heart of the populist's great delusion. THE GOVERNMENT HAS NO BUSINESS LENDING MONEY, IT ISN'T A BANK, NOR SHOULD IT BE. NO,
money issuance is only legitimately allowed to an individual human being, no business or governments qualify in this regard. E. C. Riegel made all that quite clear. What Mary Ellen and every populist would really benefit from is more lending from the savings of neighbours and brothers than from any government. The present system does not make any of this local lending even profitable, the VEN will tend to make more of this kind of lending more commonplace. She continues ...

That was what they wanted, but the Federal Reserve Act that they got was not what the populists had fought for, or what their leader William Jennings Bryan thought he was approving when he voted for it in 1913.

Imagine that! They even fooled old WJ Bryan.

In the stirring speech that won him the Democratic presidential nomination in 1896, Bryan insisted:

'We believe that the right to coin money and issue money is a function of government.

We reject this, even if most of the world still accepts it. It's a stupid idea, it holds government responsible for what it can't possibly understand. It's kind of like asking government to guarantee the competence of any professional who the state issues a license. We actually see nothing wrong with the government establishing 371.25 grains of fine silver as a dollar, as they did back in 1792, and we see nothing amiss with the government coining that metal and charging for it. The silver would belong to the people who brought it to the mint to be coined, not the government. As for the direct government issue of paper money which are “bills of credit,” the government has no Constitutional authority to do that, as has been often established in court.

Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson . . . and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business.

How about making the money really ours, a natural extension of our individual private property and get the bankers and politicians out of our pockets?

He concluded with this famous outcry against the restrictive gold standard:
You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold.”

What Bryan and the populists sought was a national currency issued debt-free and interest-free by the government, on the model of Lincoln’s Greenbacks.

Will tell everyone reading this why this will not work.

1) It makes government the issuer of the money and the only way they can get it to circulate is to buy something, so therefore the government becomes the principle buyer in an economy. It buys what it wants, distorting the economy in the process, because what it wants is not what we want. Who does this benefit most? People who like to deal in business between governments or with governments, because they have the potential to make huge profits.

2) Since the government has no way except taxation to recover what it spends, the result is a relentless inflation. Would you perhaps prefer a ruinous taxation with no inflation? Those are invariably the two results of this.

3) Probably the most significant strike against this idea is that it sanctions a government usurpation of a natural right. We consider the issuance of money to be a matter open ONLY to an individual human being; no business or governments qualify. Giving this right away to government is
breaking the natural law which is why it never works out well.

What the American people got was a money supply created by private banks as credit (or debt) lent to the government and the people at interest.

This, as described elsewhere on this blog, is the cancer that eventually kills the host. 

Although the national money supply would be printed by the U.S. Bureau of Engraving and Printing, it would be issued by the “bankers’ bank,” the Federal Reserve. The Fed is composed of twelve branches, all of which are 100 percent owned by the banks in their districts. Until 1935, these branches could each independently issue paper dollars for the cost of printing them, and could lend them at interest.”

Usury piled on usury resulting in a deliberate artificial scarcity of money (and the theft of more and more assets by the bankers and their cronies). What we said earlier concerning paying off debts, would certainly be easier and better understood within a VEN than it is presently understood.

This excerpt came from a little book, A Matter of LIFE or DEBT , page 97:

Between 1817 and 1820 in the island of Guernsey, they had been suffering the general depression and unemployment that followed the Napoleonic wars. Guernsey's State debt stood at 19,137 pounds and bore an annual interest charge of 2,390 pounds when its annual revenue was only 3,000 pounds.

That's 12.9% straight interest. Notice that the tax revenues cover the interest charge leaving a mere 610 pounds free and clear to carry on whatever tasks the government requires to be done. The only solution is to borrow more money. This illustrates exactly why Jefferson frowned on giving the government the authority to borrow money.

The island badly needed a new market hall, and its harbor, dikes and roads were in urgent need of repair. An appeal to London was made for a loan but the Government said it had no money to spare. The island's governor then called a meeting. Was the work urgently needed? he asked. Yes, was the unanimous reply. Had they enough materials on the island, had they plenty of unused labor? Again, the reply was an emphatic yes. All we need, then, is the money, declared the Governor, so we will print it. This was done in the form of special 1-pound State note secured by the revenue-raising capabilities of the new works in the future; the real credit behind the notes lay in the proposed new works, in particular the market hall.

This is a “build it and they will come” strategy that many governments use to this day, regardless of where they get the financing, since they cannot print their own money as yet, though they can borrow as much as they please, which amounts almost to the same thing. Of course many of these projects are funded and the results are often less remunerative to the people or to governments than to contractors or other special interests who decided to stick a government with their “build it and they will come” scheme while they walk off with any profits from construction or through operation of the facilities.

The contractors were paid with these notes, which in turn were paid to the workmen and others who supplied the materials, and they were accepted throughout the island by the shops and local banks as being sound money. As new building and repairs were completed, incoming rates, rents, and dock dues went to pay back the currency, which in time, was destroyed. No debts, arose and no long-term interest payments. The hungry unemployed found work and incomes, trade improved, and the entire island began to enjoy a new found prosperity.”

Note the part about currency being destroyed. That's how inflation is controlled.”

This model of state finance, which is what it is, is often touted by those who haven't imagined anything better. It has numerous pitfalls:

1) The concept is based on an interest free loan on the government's own credit. There's nothing wrong with this in theory, as indeed all the money created once paid back in simple accounting, destroys the issue. But why should the government's credit stand ahead of the credit of oneself or one's neighbours? I'm even assuming that the same might have been financed at low or no interest by a consortium of interested private investors who even back then might have been persuaded of Guernsey's long term commercial potential, particularly if they lived there.

2) It is stated that “the contractors were paid with these notes, which in turn were paid to the workmen and others who supplied the materials, and they were accepted throughout the island by the shops
and local banks as being sound money.” What made it sound? It was clearly not backed by anything; the government of Guernsey didn't have a stash of gold with which to hypothecate notes. It was sound merely because the government issued it and expected people to accept it by FORCE of its law. This whole concept is an open affront to liberty and we still can't understand quite why when shown the obvious, most people still prefer their monetary slavery. I'm boldly offering to the world the proposition that all this is nonsense, that within a VEN my money and yours would be more “sound” than any government issue whether obtained interest free or not

3) The government becomes the buyer of record, the biggest player in any economy. It buys what it wants to buy first. In the case of a place like Guernsey, a small place where everyone knows everyone, perhaps this works. Is there any call out there for county-wide currencies then? Perhaps there should be, because if you're going to use this model to for instance build and maintain roads, bridges and other infrastructure, you might as well do it interest free and benefit local contractors and workmen, etc. The “soundness” of any of this scrip would depend on taxing it back so that the issue is destroyed, the exact word Riegel used. The problem with making government the chief buyer is that its decisions deliberately distort the economy to befit the wishes of its friends and cronies.

4) It is entirely possible that communities at the size Guernsey was and is, would most benefit from adopting the VEN model and the international standard Value Unit, because the entire system would operate on the same requirements for soundness as observed in Guernsey's example without involving a government's presumption of more credit worthiness due to its taxation by FORCE than you or I. Besides this, they would obtain a monetary unit that wouldn't be affected by anything any government or speculators would be able to manipulate. Again, wherever a government is the prime issuer, its issue can be known and is therefore a commodity large enough in most cases upon which to breed speculation. You cannot have speculation in a VEN because the absolute quantity of money in circulation at any time cannot be precisely known with any certainty as every issue is countered by a money destroying cancellation, simple bookkeeping entries cancelling each other; mutual credit clearing destroys the “quantity theory of money” and all the crookedness and corruption that go with it. 

If a person borrows money from another person, and refuses to pay back their debt, that form of debt repudiation is obviously reprehensible.

Since we agree with this, there will be credit ratings within the VEN

But if we’re dealing with a financial industry (“usurocracy,” to use Ezra Pound’s term) that is bent upon getting people into debt and keeping them in debt (“debt peonage”), that breeds debts on paper that must be repaid with real wealth and may well be impossible to repay, that dictates the terms of the contracts it makes, and that effectively writes the legislation that regulates it, we’re dealing with very different relationships between creditors and debtors. This kind of activity is in the nature of chrematistics rather than economics in the classical sense. It doesn’t increase the wealth or welfare of the community as a whole.”

Chrematistics (from Greek) according to Thales of Miletus, the art of getting rich. Aristotle established the fundamental difference between economics and chrematistics.
The accumulation of money itself is an unnatural activity that dehumanizes those who practise it

Regarding usury, chapter 8 in Garrett Hardin’s Living Within Limits (Oxford: Oxford University Press, 1993) is eminently worth reading. The chapter can be found online here.

Hardin remarks:

Gold can’t breed; neither can any other valued nonliving, material thing. Though material wealth cannot breed, debt can–and without limit, because its breeding is, inherently, a breeding on paper only. Through usury we acquiesce in the breeding of debt.”

So the agreement to it shall suddenly end as soon as someone says “no more!” As said elsewhere, the music stops when either someone says, “I have no money to pay you” or “I will no longer accept your money.”

The man in the street regards usury as normal, decrying as abnormal the phenomena of inflation, bankruptcy, debt repudiation, and confiscatory taxation. But it is only through the persistence of the ‘bads’ that the ‘good’ called interest can continue to exist.”

Interest is NOT good, sorry. But we've been very clear what we meant by usury here.

But let's consider what the man in the street regards as abnormal:

1) inflation which as we've said is entirely due to government spending over taxation. VEN prices are immune from this and actually serve to demonstrate inflation in every other means of exchange, so much so that we believe that eventually people would rather not deal in any other money.

2) Bankruptcy amounts to a death of either a person or a business as an operating economic factor. These things happen all the time. Most of us observe that some local concern will get going and then disappear. Most think this is abnormal because they have lost their connection with the facts of nature and life as clearly revealed by agriculture, with which more had direct experience in times past. Many seeds may be planted, but not all of them will succeed, and even then those that sprout and become mature will not all produce the same. Nature is full of ample examples of inequality, why can't we get it through our stubborn thick heads that FORCED equality is unnatural hence impossible and even counter-productive and dangerous?

A post-usurious society will insist that:
1. Usury is abnormal (and it may be called ‘wicked’);

How about, usury is the cunning use of a simple reasoning to cover a fundamental fraud? It seems reasonable to expect a return on loaned money, but if all money occurs the same way, from whence is the extra to pay the interest to come from? One could for instance loan a bag of seeds to a farmer with the request that upon harvest the farmer return the bag of seed with a second bag of seed. Where did the extra seed come from? It was provided by nature. Money does not work that way, as it is in most instances an unnatural quantity that cannot breed more of itself. All the schemes aimed at returning “yield” merely extract money from someone else, theft from Peter to pay Paul.

2. Inflation, bankruptcy, debt repudiation, and confiscatory taxes are the necessary corrective measures required for stability in a usurious society; and

He's saying that if you allow usury, you get the others as natural consequences. We can't do anything about confiscatory taxation as we've made clear. We can do something about inflation, reduce events due to bankruptcy and debt repudiation.

3. For reasons of fairness, the practice of usury must be strictly regulated by the community, and banned in many instances.

Since there's a mathematical reason why usury is theft, it must be banned completely from the VEN. Usury is not a moral issue nor an economic one, it is a matter of breaking natural law; it invariably leads to theft of great factors of production by those who previously didn't own them, simply because at its base, all loaning of money at interest is theft. In VEN finance, if one is borrowing money to buy something on time, the lender is basically buying the thing for the buyer who pays him off in installments. The buyer pays whatever he pays for the thing since he didn't have all the money to buy it himself. All the money loaned has to be created as does all the extra paid for the thing.

For six centuries ‘informed opinion’ has regarded the unlimited paying of interest on money as normal and generally desirable. People have assumed without question that material wealth can grow exponentially forever. Now we must admit that only debt can grow exponentially forever: that an exponential curve that soars off toward infinity can apply to nothing in the real world; and that such unpleasant events as inflation and debt repudiation are necessary correctives in a social system based on usury. The intellectual revolution demanded is a formidable challenge — for our children if not for us.”

We have resolutely refused to correctly answer the advocates and sponsors of usury down through the ages. They are thieves! Finance, can and should be organized so that all loans are “self liquidating” that is they pay back exactly what was loaned and nothing more. The only way this is really possible is by having lenders assume responsibility for the goods they sell on time to others, for only then does the value exist in the thing purchased and not in the money the lender has made in the transaction. Real usury only exists where the loan is of money at interest, where the interest must be grubbed from someone else, otherwise there may be honest and compelling reasons why someone paid twice as much for the same item.

It’s the Interest, Stupid! Why Bankers Rule the World (here)

As Benjamin Franklin noted, you don't really want your currency connecting to the mining industry, because then you get an anaemic economy where trades between productive people, specialized, who want each other's stuff, can't be contracted because neither of them can access a rare metal.

This is exactly the world Murray Rothbard (and the so called “Austrian” economists) and others would have us believe is not only a better world but the ONLY world where honest money can be had, one where one must search for someone with gold or silver (commodities) and buy that with one's goods (commodities) and then go find someone whose goods (commodities) we want and trade them the gold and silver (commodities) for them. Every place the word commodities appears you can substitute speculation and price manipulation for someone's profit who didn't otherwise do a damn thing. We have to get rid of the commodity basis for money in our thinking. Replace it with a fixed standard of value measurement (NOT a commodity) used to assess the comparative value of all commodities.

This means paper or electronic currency is useful for progress. Franklin noted that the technology for the recent development of Europe had existed before that development expansion, but was held back for want of gold, which was only eventually acquired from colonization, as of India.

There were other reasons besides lack of gold in Europe. See this.

There is no good reason these sorts of developments should be held back on account of the mining and other finding of rare metals!

We agree totally. But then there will be those who say, and have, then why do you want to get involved in trading precious metals behind your Value Unit?

The proposal is discussed here.

It does not involve trading in the sense of attempting to make a profit in “public” money for buying and selling precious metals. It involves setting a piece of purchasing power as the basis for the money, in this case one one-thousandth of the price of 1 troy oz. “in your hands” of gold bullion on November 2, 2011.

What this allows us to do, with no effort at all, is to determine what all the exchange rates between our money and theirs shall be until their money is no more. All it tells us is how many dollars, pounds, euros, yen, whatever, are required each business day to equal the purchasing power of a Valun. Nothing else works this well and is hence discarded as ... an irrelevant nuisance.

At the same time, this allows us to do something with our paper “public” money, since we cannot hold it (certainly not on account) without incurring the penalties of intellectual property law; that “public” money really belongs to someone else, so we can't hold it. Instead we buy and hold precious metals with it, for each and every IE within the VEN, distributed throughout the world, and then when required to pay something to them in their money we have ready liquid assets available for the exchanges required. Again, not another thing but gold and silver works nearly this well.

Your comments always welcome.

David Burton

[4/16/17: Referencing the seven year rule, would it be a correct understanding that longer term loans are considered concatenations of shorter term loans? If so, what would be the VEN's understanding of title of property at the end of each term? Ezra in OK

Well, you have grasped the intention. For real estate (as well applicable to other large purchases of capital equipment, businesses, etc.) If a piece of property is mortgaged, that is the legally binding agreement between the lender and the buyer and it assumes that the lender has title until the mortgage is fully paid. In trust deed states, a third party is appointed to be aware of the contract and make sure it is settled. Contracts are voided if the buyer stops monthly, or per other arrangement, payments.

The same would be true of VEN Credit Contracts, except they would be settled as multiples of seven year contracts, instead of say a 15 or 30 year contract. Our Credit Contracts would be for one year or less – a BILL- for up to seven years – a NOTE – and out to 49 years – a BOND – or a series of NOTES constituting the basis for a mortgage. So a series of seven NOTES is the absolute limit to any debt contracted within the VEN; the Valun Exchange Network consisting of all members of all independent exchanges.

All BONDS must be settled whenever a jubilee year occurs and be re-negotiated after past compliance has been duly recognized by both parties and title would not change but due to non-compliance with terms of the original contract. A continuance clause would be attached as a default classification allowing the same terms to continue AFTER (not during) the year of jubilee. If the continuance clause is NOT used, the lender would have the right to change the terms of the subsequent contract and force a renegotiation. The reason all debts are settled during a year of jubilee is so that debt never outruns production. Every seven years, a smaller effect would be felt economically too. Old debt is settled and new debt is contracted and the cancer that is excessive debt is prevented from growing beyond what is necessary to further a sustainable economy. Believe me, in the long run financial businesses associated with the VEN would be stronger than comparable businesses operating in “public” money.

Credit development is something that must develop naturally and shall not (and I mean precisely never) be able to be achieved from “command” top down “planning” of an economy. If you still think so, please read the rest of this blog and if you still think so, assume you are either a clown or a dunce who shall never learn any real god damned thing of any importance and wow am I being kind. Why should anyone suffer idiots gladly?

So terms of settlement are only slightly different under our proposal and in any case, all VEN Credit Contracts are between members of our exchange communities ONLY and NOT with any outsiders. Private means private. Our Credit Contracts and the financial world they achieve for us will be ours, not THEIRS.

It will be worthwhile for all members to keep their promises and honour their contracts as all credit scoring will be tabulated and distributed free of charge to any member asking for it. If you want a better score, all you need do is keep your contracts fulfilled. There will be certain graces, but we do intend an honest and disciplined approach to all financial matters. The higher your score, the more likely you will be able to secure larger contracts for more Valuns.]

No comments:

Post a Comment